Mattel, Inc. - Shareholder/Analyst Call

Mattel, Inc. (MAT)

February 10, 2012 1:30 pm ET

Executives

Bryan G. Stockton - Chief Executive Officer and Member of The Board of Directors

Kevin M. Farr - Chief Financial Officer

Analysts

Gregory R. Badishkanian - Citigroup Inc, Research Division

Michael Kelter - Goldman Sachs Group Inc., Research Division

Timothy A. Conder - Wells Fargo Securities, LLC, Research Division

Lawrence Haverty

Unknown Analyst

Margaret B. Whitfield - Sterne Agee & Leach Inc., Research Division

Sean P. McGowan - Needham & Company, LLC, Research Division

Robert W. Carroll - UBS Investment Bank, Research Division

Presentation

Bryan G. Stockton

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Good afternoon, everyone, and thank you for joining us in person or via the webcast. I want to start off by saying how excited I am to be the 6th CEO in the 67-year history of Mattel and how honored I am to be continuing the legacy of such visionaries as company founders, Ruth and Elliot Handler, as well as Herman Fisher and Irving Price, the new fix [ph] of Fisher-Price; and of course, President Raymond, who continues to inspire us today.

I also want to acknowledge and thank Bob Eckert, whose contributions to the company have been tremendous over the last decade. He's a friend and a great business partner, and I'm excited to be working closely with him, as he continues in his role as Chairman of the Board.

Now I've had a lot of fun over the past 11 years both here at Mattel and in the toy industry. Speaking as a father of 4 and a grandfather of 1, there's no cooler job in the eyes of kids than working for the world's largest toy company. When I joined Mattel back in 2000, my first role was leading business planning and development, but I learned the [ph] international division and most recently served as the company's COO. And for the past 8 years, I've been a board member of the Toy Industry Association and have served as Chairman of the TIA since 2010. These experiences have given me some very different perspectives. As a result, I continue to believe in the potential of this industry and the power of Mattel's employees to keep delivering a great investment opportunity for Mattel's shareholders.

Since I was appointed to this position, there are handful of core questions that I am asked repeatedly. Having just come from Nuremberg Toy Fair in Germany, 3 questions were top of mind: what's going to change now that you're CEO; what will remain the same; and finally, how does Mattel plan to achieve its vision?

Let's start with what will remain the same. One thing that will remain the same is our commitment to achieving consistent growth and financial performance. So as an investor, that means that Mattel will continue to strive to be a very well-run consumer goods company. In fact, we've delivered a strong 3-year trend of margin expansion, cash flow, earnings and share price growth, as well as disciplined capital deployment, which resulted in strong gains in total shareholder return, and we've accelerated growth in the last 2 years. We'll also continue to be a company that can weather economic storms by not only boasting the best brands, but also best in the industry's most expansive global sourcing, manufacturing and distribution organizations, as well as the best commercial country and customer management system in the industry. When we look at our portfolio of brands in countries, the discipline of our strategy is to grow, and the quality of our organization, we are a company that is well positioned for future growth.

We'll also continue to execute the Mattel strategies that the leadership team and I have crafted and are beginning to execute. Mattel will focus on the 4 key growth strategies, namely, delivering consistent growth through continuing momentum and core brands, building new franchises, optimizing our entertainment partnerships and continuing to expand our international footprint. We also aim to build on our operating margin progress through sustaining gross margins of about 50% and delivering on our cost savings targets.

We'll also continue to generate significant cash flow and deploy it in a disciplined, opportunistic and value-enhancing manner by optimizing the continuum of dividends, share repurchases and targeted acquisitions. When it comes to expectations regarding commitment to financial performance, in a word, it's continuity.

Now having said all that, one thing I have learned in my 11 years at Mattel is that the toy industry is always changing. I call it the continuity of change. In the last decade, we've seen changes in the retail landscape, as retailer strategies have evolved and online shopping has become the true channel of distribution for the toy industry. Countries and economies are ever changing. The burgeoning middle class in Latin America and certain parts of Asia is creating a whole new generation of toy buyers. And children are always changing. I know this from comparing how my own kids play to how my granddaughter plays.

The play patterns may be tried and true, but toys need to keep pace with changes in technology, fashion preferences and cultural trends. And Mattel is always changing and evolving, which is why we remain the #1 toy company in the world, and the latest change includes the acquisition of HIT Entertainment and its centerpiece brand, Thomas & Friends.

So what's going to change now that I'm CEO? Well, one of my guiding principles in life is to be happy but never satisfied, and that's the approach I'm taking in my new role at Mattel. I'm happy with the current trends in our business. We have incredible brands, a great franchise launch with Monster High, a great acquisition with HIT Entertainment, great entertainment partners, an incredible global infrastructure and an organization that's never satisfied with standout results that Kevin will review in just a few minutes.

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